Pakistan Services Limited (PSEL) is playing a key role in the corporate circle of Pakistan for over 50 years. The company was incorporated in 1958 at KSE as a publicly traded company. It is principally engaged in the hotel business and owns and operates the chain of six Pearl Continental Hotels in Pakistan, at Karachi, Lahore, Rawalpindi, Peshawar, Bhurban, and Muzaffarabad.
Strategically situated in prime locations, the hotels cater to the business and leisure needs of the local and international market. The company has placed itself at the top of the list in serving and leading the hospitality industry in the country. PSEL has successfully promoted its logo "Pearl Continental" locally and in other parts of the world too. In 1985, the company was acquired by Hashoo Group of Companies, a major player in the hospitality industry in Pakistan.
The task to manage the hospitality interests of the Group led to the formation of two companies: Hashwanai Hotels Limited and Pakistan Services Limited. Following its acquisition by PSEL, the portfolio of the five hotels initially operated under the management of Inter Continental Hotels Group, which was later re-branded as Pearl Continental Hotels.
In 2001, PSEL acquired the master franchise for destination of the World creating an augmentation to its well-defined position in the tourism and hospitality sectors of Pakistan. The company also floated its rated TFCs in November 2003 and has recently expanded its network in Pakistan and the GCC market. The latest addition has been opening of "Pearl Continental Hotel" in Muzaffarabad (capital of Azad Kashmir). PSEL also made an equity investment in 2006 in PC Hotels Limited incorporated in Dubai after approval from SBP.
Financial performance FY14: Over the last five financial years Pakistan Services Limited top line growth has been adequate; it has doubled from FY10 to FY14. However, the company's profitability has seen much fluctuation over this period. During FY11, the company's profitability peaked along with the net profit and gross profit margins reported an increase of 500 bps and 300 bps. However, the bottom line decreased again significantly in FY13 with the net profit margin dropping by 700 bps.
However, in FY14 the bottom line of the company performed very well. In FY14 Pakistan Services Limited reported a massive increase in its consolidated profits. During the period, before and after tax profit for the year 2013-14 was recorded at Rs 1,837 million and Rs 1,335 million respectively. It translated into an increase in profit after tax by Rs 863 million more to the bottom-line. The increase in bottom line doubled the net profit margin from 7 percent in FY13 to 14 percent in FY14.
In terms of sales growth, the company reported 11 percent increase year-on-year, in its top line largely due to the performance of room department of the business, which has reported a gain of 16 percent year-on-year. While the company reported average occupancy at 64 percent year-on-year, this is almost similar to what the company showed in FY11. On the other side, food and beverage department reported an increase of 11 percent.
Pakistan Services Limited was unable to restrict its cost of services and reported 9 percent increase in year-on-year. However, in terms of sale the company reported 57 percent increase in its cost of services. Nevertheless, thanks to better sales growth the company was able to increase 100 bps in its gross profit margin. Other expenses came down during the period under discussion, but the administrative cost spiked upward and reported an increase of 26 percent in terms of net sales. Other income increased by 88 percent year-on-year strengthening the bottom line of the company.
Nine-month performance: Pakistan Services Limited in terms of top line has performed decently in the nine months period under discussion. Sale growth has witnessed a 4 percent year-on-year increase. The 56 percent of the top line came from the food and beverages segment, which has seen a minor decrease from last year same time.
However, even though the PSEL has raised the average daily room rate (ADR) of its hotels from Rs 9,170 to Rs 10, 921 in the period under review, the company saw a 9 percent increase in its room rentals. But, the license related businesses of the company also witnessed a minor decline.
The company also has to pay higher for the sales and services. Even though it has only increased by 1 percent year-on-year but in terms of net sales it has witnessed an increase of 55 percent. However, thanks to higher sales, the gross profit margin has risen to 200 bps from 43 percent same time last financial year.
Outlook: Pakistan Services Limited has indeed ravishing future ahead since it is the only major hospitality company that has its presence in every part of Pakistan. The company seems quite determinant to take advantage of Pak-China corridor. However, the higher cost of service might certainly be an issue for the enterprise.

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Pakistan Services Limited
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Rs (mn)                     9MFY14   9MFY15       YoY
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Sales and services - net     5,689    5,933        4%
Cost of sales and services   3,237    3,266        1%
Gross profit                 2,452    2,667        9%
Administrative expenses      1,382    1,741       26%
Finance cost                   102       81      -21%
Other income                   557      149      -73%
Other expenses                  28      112      307%
Profit before taxation       1,582      946      -40%
Taxation                       360      349       -3%
Profit for the period        1,222      597      -51%
Gross profit margin            43%      45%    Up 200
                                                  bps
Net profit margin              21%      10%      Down
Source: Company Documents                    1100 bps
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